Dubai - a Mid East Ponzi Scheme?
I recently spoke at a Marketing & Sales conference in Yemen. I flew Emirates Airline and had the opportunity to spend some time in Dubai. Emirates Airlines is truly one of the best flying experiences I have had in decades. Great service, great food, seat back entertainment. I was dreading the 15-16 hour flights but it turned out to be more bearable than I expected.
While I was sitting in the plane, I was thinking to myself that they were probably losing money and that the airlines was both good public relations for the UAE and a comfortable means to travel for the oil rich who didn't have their own private jets. When I arrived in the airport, it too was cavernous and far larger than I would have expected given the amount of people walking around. Again, a bit of over investment.
While I was touring around, I learned that Dubai Creek (seen behind me) was not really a creek in the sense that most of us know a body of water. It's not like Dubai has lots of rain and run off so it originally was not quite as expansive as it is today. Some smart thinking and foresight envisioned the Dubai that we see today and money was borrowed from Kuwait to turn the creek into a water feature with water taxies and waterfront development opportunity.
Dubai has been compared to Las Vegas (without the gambling) or Disneyland and it does offer an exciting alternative for vacationers from neighboring countries. The question I kept asking myself was if Dubai was actually sustainable. There is no reason for a city in a desert with summer time temperatures of 130 degrees to have any real competitive advantage over other cities which have longer histories although less spectacular real estate activity.
Over the past week, Dubai has been in the news due to their financial crises. Seems they have $100 Billion of debt for an economy with a $50 Billion GDP which is driven by construction and rising real estate values. Problem is, real estate values are not rising and it is hard to imagine how they can sustain long term viability with an economy which is driven by government expenditures. A noble experiment but how much can desert real estate really be worth over the long term? Will they really find enough industry to relocate there and enough people to buy residences to sustain the real estate development driven economy?
Do visit Dubai if you have a chance. If they can't pay the air conditioning bill, it's likely to become a ghost town in the desert.
posted by Michael Sick @ 3:10 PM
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